Mid-Session Update: Short Run Update of Centrists.Org No-BS Budget Baseline Jeff Lemieux
7/20/2003
A Short-Term Update to to Centrists.Org's Realistic, No-Gimmick Baseline to Reflect New Data From Administration’s Mid-Session Review
Centrists.Org, No-BS Budget Baseline Tables:
Table 1. Federal Budget in Billions of Dollars, 2000-2030
Table 2. Federal Budget as a Percent of GDP, 2000-2030
Table 3. Summary Table, 2000-2030 in 10-Year Intervals
Reflecting the latest revenue and spending figures from the President’s Mid-Session Budget, Centrists.Org has raised its projection of the federal deficit to about $450 billion in 2003 and $465 billion in 2004, just over 4 percent of GDP. Those figures are very close to the Administration's projections.
However, Centrists.Org’s projections differ significantly from the Administration’s budget after 2004. The Administration assumes that spending growth will slow dramatically beginning in 2004, and that the deficit will shrink to under 2 percent of GDP in 2005 through 2008.
Under more realistic assumptions about spending trends, and assuming that various tax cuts will not be allowed to expire on their scheduled “sunset” dates, Centrists.Org now projects that deficits will exceed 3 percent of GDP throughout decade, and will worsen significantly as the baby boom generation begins to retire and join the entitlement rolls 2010. Centrists.Org projects the deficit will total $4.9 trillion in the 10-year budget period from 2004 through 2013.
This update to Centrists.Org’s budget baseline reflects two short-term adjustments based on the most recent trend figures available. None of the short-term changes affects the long-run projections significantly.
First, based on early indicators, the economy is likely to continue its pattern of slow (roughly 1 percent) real economic growth in the second quarter of 2003 (the third quarter of the fiscal year 2003 for budgetary purposes). Even if growth accelerates (as expected) in the final quarter of the fiscal year, it now seems appropriate to reduce the full-year forecast. Therefore, Centrists.Org reduced the projected rate of economic growth in fiscal year 2003 by 0.5 percentage points. At this point, however, the growth projection reflects an assumption of delayed economic recovery, not a permanent trend toward slower growth. Therefore, Centrists.Org increased the projection of economic growth in 2004 and 2005 by 0.25 percentage points each year. Thus, total GDP is projected to be virtually the same level in 2005 and thereafter as in the previous projection, which was posted on June 22.
Second, Centrists.Org has reduced projected revenues in 2003 and 2004, based on the latest trends. This is partly offset by accelerated economic growth in 2004. Moreover, the projection of revenue growth was increased slightly in 2005-2007. Again, by 2008, projected revenues are about the same as before.
This short-term model adjustment does not reflect new assumptions about long-term spending, revenue, or economic patterns. When new data from the Congressional Budget Office are released in August, Centrists.Org may update is short-term projections again, and may reconsider the long-term patterns at that time.
Like the Administration’s budget, Centrists.Org continues to include the assumption that Congress will approve a Medicare drug benefit that would increase spending by $400 within the 10-year budget period, and would permanently raise the growth of Medicare spending by about 0.3 percentage points a year in the long-run. (That assumption is based on an extrapolation of the Congressional Budget Office’s 10-year estimate of the Senate Medicare bill, which contained few long-term cost control measures and seems most likely to be the final version enacted into law.)
Of course, it is possible that Congress will not enact a new Medicare benefit (or will accompany new benefits with long-term cost containment measures), will let tax cuts lapse, or will take other actions designed to reduce the projected deficits. Nevertheless, Centrists.Org projects that such deficit reduction measures are not likely based on current legislative outlook.
As always, long-term projections are not intended to be forecasts of what is likely to occur. Instead they are intended to be realistic, plausible projections of the trajectory that current spending and revenue patterns imply for the budget. Congress will almost certainly be forced to change that trajectory by slowing the growth of spending and raising tax revenues, especially after 2010, when the large benefit boom generation retires and joins the entitlement rolls, and would otherwise place the budget under an untenable stain.
Centrists.Org, No-BS Budget Baseline Tables:
Table 1. Federal Budget in Billions of Dollars, 2000-2030
Table 2. Federal Budget as a Percent of GDP, 2000-2030
Table 3. Summary Table, 2000-2030 in 10-Year Intervals
Links:
Centrists.Org An Analysis of the Administration's Mid-Session Budget (July 15, 2003)
Centrists.Org Measuring the Cost of Unfunded Federal Spending Promises (July, 14, 2003)
Centrists.Org Long-Term Baseline Homepage
